DISCUSSION TOPIC: New Line of ‘Super-Premium’ Chocolates Due From Nestlé

TOPIC SUMMARY:

At a time when the high-end chocolate sector is the fastest-growing segment of the global confectionery market, with annual growth of 8 percent, a new player has decided to get in on the act. As reported by just-food.com, Nestlé, the second-largest chocolate company in the world, plans to make some up-market moves with “a swathe” of new products currently under development.

Although it has 13 percent of the world’s chocolate sales under brands such as Butter Finger, Nestlé Crunch, Baby Ruth and Kit Kat, according to just-food, super-premium offerings represent only four percent of Nestlé’s own total. But, a spokesperson told the website, “there is a clear market for premium and super-premium chocolates in industrialized countries.”

Over the past few months, Hershey and new partner Starbucks, Ghirardelli and Mars have all decided to go for a chunk of the market. U.K.-based Cadbury plans to take its organic chocolate, Green & Black’s, nationwide in the U.S. this year. More experienced at the top end are Lindt & Sprüngli and Godiva, sold by Campbell’s in December 2007 to the Turkish Ülker Group.

In the face of such competition, food industry consultant, James Amoroso, told just-food.com that he finds it “difficult” to think of a “unique brand positioning” in the U.S. for a premium chocolate from Nestlé. It would have been better, he says, to have purchased Godiva to take advantage of what he says is “a century of competence in premium-quality chocolate – the company makes it for the Swiss mainly – and it has got the marketing muscle and the patience required.”
Instead, Nestlé is working with Belgian master chocolatier Pierre Marcolini to develop what they describe as “a number of premium and super-premium top line chocolates with artisan qualities.” The company’s intention is to launch them in developed countries throughout Europe and Asia as well as the U.S. where consumers have greater spending power. No timescale or detailed description of the new products has been revealed. “We prefer to surprise our competitors,” Nestlé told just-food.

Discussion questions: Given the perception of the Nestlé brand by consumers in the U.S., how would you brand their new line of upscale chocolate products? What’s a smart strategy for them to tap growth in the gourmet chocolate sector?

My post:

It is interesting that Nestlé has waited until now to enter a market that has been booming for some time and has allowed the majors (Hershey, Ghirardelli, Mars) to establish positioning. However, Nestlé’s strategy may prove to be brilliant. It is well known that profits typically go to the company that lets others pave the way in establishing consumer acceptance and desire for a product. Premium chocolate has reached the commodity stage and Nestlé certainly knows how to maximize commodities.

Nestlé will likely brand their premium chocolates with a name other than Nestlé. I think they should both launch their own brand and look to acquire one or more significant names as Hershey did with Dagoba, Joseph Schmidt and Scharffen Berger. Developing their own brand is important so they develop competency in developing and managing premium chocolate. Competency in premium product management is different than competency in mass product management and will make them better stewards of any artisan chocolate brands they may acquire.

Giant Eagle, Hy-Vee, Kroger, Meijer, Publix, Rite Aid, Safeway and Walgreens, have all recently filed lawsuits alleging that the major chocolate companies selling products in the U.S. have engaged in price-fixing.

A lawsuit filed last week by Giant Eagle against Cadbury Schweppes, Hershey, Mars and Nestle alleges that the companies have colluded on prices going back to 2002.

The suit, as reported by The Wall Street Journal, contends, “The chocolate confectionery product market was ripe for collusion. In addition to the collective market power exercised by the defendants…defendants’ profits from these products have suffered in recent years because of increasing health concerns, and changing consumer preferences, with respect to chocolate consumption.”

Discussion questions: Isn’t it common in commodity-based categories such as cocoa, coffee, paper, oil, wheat, etc. that prices rise or fall across the board at roughly the same rate and pace? Why do you see retailers filing suits against chocolate manufacturers when they have not done the same in other categories where competing companies take price increases on virtually the same schedule?

My post:

This will be interesting to watch. On the one hand, it seems ludicrous that typical commodity pricing processes based on matching what the leaders are doing would be construed as price-fixing. This process happens daily with local gasoline station prices, milk, etc. This is not price-fixing, it is just typical competitive pricing: charge as much as the market will bear and don’t appear to be pricey compared to the local competition. On the other hand, it would seem odd that these top retailers would go to the time, expense, and distraction of a lawsuit if there weren’t extremely compelling evidence of actual price-fixing which would involve proof of direct communication between these manufacturers to fix chocolate prices. As I said, this will be interesting to watch.